Western banks cold-shoulder Iran trade finance scheme

By Jonathan Saul and Parisa Hafezi

8 Min Read

Iran's President Hassan Rouhani speaks during a session at the annual meeting of the World Economic Forum (WEF) in Davos January 23, 2014.Denis Balibouse

LONDON/ANKARA (Reuters) - Despite a diplomatic thaw, Western banks are steering clear of attempts by Iran to get them involved in financing humanitarian transactions, fearing they could be penalized under U.S. sanctions, bankers and government officials told Reuters.

Iran was never barred from buying food or other humanitarian goods under sanctions imposed because of its disputed nuclear program, but measures by the European Union and the United States have made trade generally more difficult over the past two years by hindering payments and shipping.

As part of talks in Geneva over the nuclear question, Tehran is pressing world powers to speed up trade finance arrangements on humanitarian deals involving both Western and Iranian banks, according to an Iranian government document seen by Reuters and sources familiar with the initiative.

According to a joint plan of action agreed in November in Geneva, world powers would "establish a financial channel to facilitate humanitarian trade for Iran's domestic needs using Iranian oil revenues held abroad".

"This channel would involve specified foreign banks and non-designated Iranian banks to be defined when establishing the channel," the action plan said.

Iran, with its economy under severe pressure, is keen to push this process forward.

"We have been informed that according to the negotiations and agreements done in Geneva, the possibility to exchange direct LCs (letters of credit) between seven European banks and eight Iranian banks for food, medication and humanitarian goods has been provided," the Iranian government document seen by Reuters says, although it made clear this was not final.

"Please note, that we can accept no legal liability regarding this information as it remains to be officially confirmed by the responsible authorities."

BIG BANKS

The U.S. Treasury Department and EU officials declined to comment on specific banks.

A U.S. Treasury official said the United States is working with banks and governments in Asia and Europe to establish mechanisms for humanitarian trade with Iran, and multiple channels were ready for Iran to purchase humanitarian goods.

A different U.S. official told Reuters separately that Washington was having trouble persuading some big banks to work on the issue.

"Some banks are willing to play a part here. But not all of them. There are a lot of big banks that have been subject to fines for engaging in transactions that were in violation of U.S. sanctions that aren't willing to do anything - even humanitarian," the official said.

"They just are not willing to do business with Iran. And we are not in a position to say, you have to."

Banks may well feel the need for caution in this area.

Regulators in New York and Washington are looking at potential violations by France's Credit Agricole (CAGR.PA) and Societe Generale of U.S. sanctions imposed against countries like Iran, a person familiar with the investigation said.

In 2012 New York regulators threatened to revoke Standard Chartered's (STAN.L) banking license after it broke sanctions on Iran. HSBC (HSBA.L) was fined $1.92 billion by U.S. regulators for various violations including doing business with Iran. In February, BNP Paribas (BNPP.PA) set aside $1.1 billion for a possible fine for breaching U.S. sanctions on countries including Iran.

Several banking sources, speaking on condition of anonymity due to the sensitivity of the subject, said Western banks were wary of getting involved in the latest initiative. One said banks would need cast-iron assurances that they would not face exposure before even considering it.

"It is only natural that banks will be cautious to what the political world offers. It changes so quickly, as events in Ukraine can attest," the banker said.

"What we could be looking at is very short-term financings or involvements and structures, so you will have optionalities to exit should anything go wrong," he added. "Banks will need more clarity."

INTERIM AGREEMENT

Iran and Western governments reached an interim agreement in November last year over Tehran's atomic work in exchange for limited sanctions relief for six months.

By late July, Western governments hope to hammer out an accord that would lay to rest their suspicions that Iran is seeking the capability to make a nuclear bomb, an aim it denies, while Tehran wants sanctions lifted.

Iranian government officials said the document, which has been sent to Iran's Supreme National Security Council, tasked with safeguarding Tehran's interests, listed the following banks as "available for further actions": Standard Chartered Bank (London), Societe Generale (Paris), Banque de Commerce et de Placements (BCP) (Geneva), UniCredit Bank (Munich), Commerzbank (Frankfurt), United Bank (Zurich) and BHF Bank (Frankfurt).

It was not clear whether these banks had been approached to provide finance. Two business executives familiar with the initiative said they were aware that Standard Chartered, Societe Generale, Commerzbank were among those on the wish list.

Commerzbank, Societe Generale, United Bank and BCP all declined to comment. A spokeswoman for Standard Chartered said the bank was not involved and would not get involved in any transaction with any party from Iran.

Unicredit said the group was "not aware of, and hence is not participating in any international initiative involving financial institutions related to Iran subsequent to the P5+1 (major powers) accord". BHF Bank said it was "not offering or providing any financial services with links to Iran".

Swiss and German banking regulators declined to comment, although officials in Germany said if German banks were still rigidly adhering to prohibitions on doing business with Iran, the government was ready to explain that some of those restrictions were eased in November.

"If banks in Germany apply the restrictions too rigidly and cautiously in financial transactions with Iran, the government would encourage them to clarify the possibilities that can be done under the agreement, not in order to relax or change these thresholds, but to help the banks keep in compliance with the action plan," a German finance ministry official said.

IRAN EAGER FOR DEAL

"Iranians are very eager to have this as soon as possible and teams are working on it and all reports go to the Supreme Leader (Ayatollah Ali) Khamenei," one senior Iranian government official familiar with the nuclear talks said.

"It was an Iranian initiative but the other party (Western powers) also agreed on that, though they had some internal dispute on the list of Western banks," the official said.

"There have been some direct contacts between Iranians and various bank officials in Europe since November (the Geneva deal) but the final agreement needs more work and meetings."

The Iranian banks named in the document referred the issue to Iran's central bank, which declined to comment.

A Western diplomatic source confirmed the initiative was under discussion and Western powers saw such an arrangement as increasing the transparency of trade deals.

"If you have Western banks, many of whom with U.S. operations, potentially involved in such an initiative it is a better situation than having hundreds of middle men in such trades where you cannot track where the money is going. It also allows much stricter governance on the part of those banks. This is the idea at least," the diplomatic source said.